Upbeat FHA outlook in Trump budget renews calls for premium reduction

WASHINGTON — The Trump administration's new budget proposal shows the Federal Housing Administration mortgage insurance program should be very profitable in fiscal year 2019, but there are no indications that the FHA will reduce its mortgage insurance premiums anytime soon.

The budget projects that the agency will endorse $230 billion in FHA-insured single family loans next fiscal year, which is down from $238 billion in fiscal year 2018. But the agency will end the fiscal year with a net profit of $7.36 billion, according to the administration's proposal.

Whereas the budget shows the agency's main insurance capital reserve losing funds in 2017 and 2018, the proposal shows an estimated $7.35 billion being invested in the reserve in fiscal year 2019, bringing the total reserve to $33.26 billion.

The positive outlook for the FHA in the Trump administration's proposed budget has renewed calls for the mortgage insurance agency to reduce the premiums it charges home buyers.
Bloomberg News

The positive outlook has renewed calls for the FHA to reduce the premiums it charges home buyers. Last year, just after President Trump took office, the new administration suspended an Obama-era plan to reduce the agency's price.

"This makes a case that FHA is overcharging FHA single-family borrowers," Scott Olson, executive director of the Community Home Lenders Association, said of the new budget projection. His group said the 80-basis-point annual mortgage insurance fee should be reduced to the pre-crisis level of 55 basis points.

The fiscal 2019 budget plan released Monday shows that the FHA will make a cumulative profit of roughly $26 billion over the three-year period ending in Sept. 30, 2019.

Brian Chappelle, a partner at Potomac Partners, noted that with the FHA single-family program already cushioned by strong reserves, "a premium reduction is definitely justified."

Once again, the Trump administration is proposing to tax lenders to cover the cost of updating the FHA's technology systems. The budget proposal would provide an extra $20 million to upgrade the agency's aging IT systems.

"This investment will enable FHA to address operational and financial risks posed by aging systems, become a more reliable partner for lenders and, by extension, better serve borrowers," according to the proposed budget.

To offset the cost, the Office of Management and Budget wants lenders to charge borrowers a fee of $25 per loan over the next four years.

"While no one questions that FHA’s technology needs to be modernized, it is disappointing that the administration thinks it is necessary to charge lenders this fee which will, in some form, be passed on to home buyers," Chappelle said.

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